Vietnam yesterday announced its biggest currency devaluation in years, but analysts said the government must do more to address a complicated mix of problems — including a huge trade deficit and high inflation.
In a widely expected announcement, the State Bank of Vietnam said the average interbank exchange rate had been adjusted by 9.3 percent to 20,693 dong against the dollar, compared with 18,932 dong previously.
It said in a statement the decision was aimed at “ensuring the liquidity of the market, contributing to curb the trade deficit and supporting the implementation of more active and flexible monetary policies.”
Photo: AFP
The move comes after the ruling Communist Party’s congress last month set an economic framework for the coming years, with leaders noting a need to “stabilize the macroeconomy.”
Vietnam has recorded impressive growth, but economic expansion has come with increased risks, including higher inflation and currency pressure. The country has also seen falling foreign exchange reserves and a relatively high current account deficit, the broadest measure of external trade.
Le Dang Doanh, of the Economic College of Hanoi, said devaluation and other steps were necessary “considering the huge trade deficit and the rapidly declining financial reserves of Vietnam.”
Devaluation might temporarily help reduce Vietnam’s imports, but it would also boost inflation because the price of imported fuel would rise, Doanh said.
Vietnam saw annual inflation hit 12.17 percent last month, far higher than its regional neighbors.
Benedict Bingham, Vietnam representative for the IMF, said the devaluation’s effectiveness would depend on whether it is underpinned by a greater focus on containing both inflation and public debt.
Policies on these issues would help address the underlying problem, which is people’s lack of confidence in the dong.
“That’s the issue that they need to get to grips with,” Bingham said.
Vietnam’s previous devaluation, by 2.1 percent, was in August last year.
Many Vietnamese hold dollars and gold — rather than their own currency — as a safe haven against economic uncertainty. The World Bank has said an unusually large amount of money held outside the country’s official foreign exchange reserves has pressured the unit.
Unlike its neighbors, whose currencies strengthened in recent months as confidence in their economies attracted a flood of overseas capital, Vietnam’s dong has consistently struggled.
The central bank yesterday also tightened the daily trading band for buying and selling dollars by commercial banks, to 1 percent from the previous 3 percent of the interbank exchange rate.
Ratings agencies Moody’s and Standard & Poor’s recently downgraded Vietnam’s debt rating over worries about the economy, the banking sector and the problems of nearly bankrupt state-owned shipbuilder Vinashin.
BUSINESS UPDATE: The iPhone assembler said operations outlook is expected to show quarter-on-quarter and year-on-year growth for the second quarter Hon Hai Precision Industry Co (鴻海精密) yesterday reported strong growth in sales last month, potentially raising expectations for iPhone sales while artificial intelligence (AI)-related business booms. The company, which assembles the majority of Apple Inc’s smartphones, reported a 19.03 percent rise in monthly sales to NT$510.9 billion (US$15.78 billion), from NT$429.22 billion in the same period last year. On a monthly basis, sales rose 14.16 percent, it said. The company in a statement said that last month’s revenue was a record-breaking April performance. Hon Hai, known also as Foxconn Technology Group (富士康科技集團), assembles most iPhones, but the company is diversifying its business to
Apple Inc has been developing a homegrown chip to run artificial intelligence (AI) tools in data centers, although it is unclear if the semiconductor would ever be deployed, the Wall Street Journal reported on Monday. The effort would build on Apple’s previous efforts to make in-house chips, which run in its iPhones, Macs and other devices, according to the Journal, which cited unidentified people familiar with the matter. The server project is code-named ACDC (Apple Chips in Data Center) within the company, aiming to utilize Apple’s expertise in chip design for the company’s server infrastructure, the newspaper said. While this initiative has been
GlobalWafers Co (環球晶圓), the world’s No. 3 silicon wafer supplier, yesterday said that revenue would rise moderately in the second half of this year, driven primarily by robust demand for advanced wafers used in high-bandwidth memory (HBM) chips, a key component of artificial intelligence (AI) technology. “The first quarter is the lowest point of this cycle. The second half will be better than the first for the whole semiconductor industry and for GlobalWafers,” chairwoman Doris Hsu (徐秀蘭) said during an online investors’ conference. “HBM would definitely be the key growth driver in the second half,” Hsu said. “That is our big hope
The consumer price index (CPI) last month eased to 1.95 percent, below the central bank’s 2 percent target, as food and entertainment cost increases decelerated, helped by stable egg prices, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said yesterday. The slowdown bucked predictions by policymakers and academics that inflationary pressures would build up following double-digit electricity rate hikes on April 1. “The latest CPI data came after the cost of eating out and rent grew moderately amid mixed international raw material prices,” DGBAS official Tsao Chih-hung (曹志弘) told a news conference in Taipei. The central bank in March raised interest rates by